When you think about it, participating in the stock market boils down to one simple question: should you buy or sell a stock? This is exactly the question asked by Deutsche Bank’s Bryan Kraft when mulling over Disney’s (DIS) present situation.
Actually, that’s not quite accurate. Kraft takes out of the equation the selling part, and wonders if now is the right time to invest in the House of Mouse.
The answer is yes… with caveats.
“While we see pros and cons to the investment case at this stock price; we believe the strength in the fundamentals, the growth outlook, and progress toward a successful transformation in video entertainment will drive the stock higher over the next 12 months,” the analyst said.
Disney’s pivot toward the streaming market with Disney+ is already proving a success and Kraft counts the company’s “world class” management team and “one of the best consumer IP portfolios and brands in the world,” as other reasons why Disney remains “a very attractive long-term holding.” While the analyst now anticipates a more gradual recovery to the Theme Park segment than previously expected, it is nevertheless an additional tailwind.
However, the changing entertainment landscape in the post-covid era – one where there is “uncertain long term outlook for theatrical revenue” – means the analyst ascribes a lower valuation to the Content Sales/Licensing & Other (CSL) sub-segment. Theatrical revenue reached an all-time high of $4.7 billion in 2019, but Kraft doubts this level will be reached again “given changes to windowing and what we believe is a permanent directional change in consumer behavior driven by the pandemic.” By 2025, based on a post-pandemic recovery, the analyst expects this segment to generate revenue of $3.5 billion.
That said, CSL represents only 1% of Kraft’s sum-of-the-parts (SOTP) model. And although another concern revolves around the 2022 margins in the Linear Networks business, this segment accounts for just 10% of Kraft’s SOTP model. With DTC revenue (58% of EV) anticipated to show a 3-year CAGR of 25% between F2022 and F2024 and Theme Parks OI (operating income – at 31% of EV) expected to grow at a 130% CAGR over the same period – from $6.8 billion in F2019 (pre-covid) to $10.0 billion in F2024 – the “growth outlook remains strong.”
Accordingly, Kraft rates DIS stock a Buy along with a $200 price target. This figure implies ~10% upside from current levels. (To watch Kraft’s track record, click here)
Most Street analysts also remain avid Disney fans. The stock’s Strong Buy consensus rating is based on 15 Buys vs. 3 Holds. The forecast calls for 12-month gains of 18%, given the average price target currently stands at $214.47. (See Disney stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
